Aetna 2008 Annual Report Download - page 81

Annual Report - Page 76
There is not a material difference between premiums on a written basis versus an earned basis. Reinsurance
recoveries were approximately $63 million, $62 million and $83 million in 2008, 2007 and 2006, respectively. At
December 31, 2008, reinsurance recoverables with a carrying value of approximately $980 million were associated
with three reinsurers.
Effective October 1, 2008, we entered into an agreement with Hannover Life Reassurance Company of America to
reinsure fifty percent of our group term life and group accidental death and dismemberment insurance policies. We
entered into this contract in order to reduce the risk on catastrophic loss which in turn reduces our statutory capital
and surplus requirements. This contract does not qualify for reinsurance accounting under GAAP pursuant to FAS
113 “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts.” As such, this
contract has been accounted for under deposit accounting in accordance with Statement of Position 98-7 “Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk.”
18. Commitments and Contingent Liabilities
Guarantees
We have the following guarantee arrangements at December 31, 2008.
• ASC Claim Funding Accounts - We have arrangements with certain banks for the processing of claim payments
for our ASC customers. The banks maintain accounts to fund claims of our ASC customers. The customer is
responsible for funding the amount paid by the bank each day. In these arrangements, we guarantee that the
banks will not sustain losses if the responsible ASC customer does not properly fund its account. The aggregate
maximum exposure under these arrangements is $250 million. We could limit our exposure to this guarantee
by suspending the payment of claims for ASC customers that have not adequately funded the amount paid by
the bank.
• Indemnification Agreements - In connection with certain acquisitions and dispositions of assets and/or
businesses, we have incurred certain customary indemnification obligations to the applicable seller or
purchaser, respectively. In general, we have agreed to indemnify the other party for certain losses relating to
the assets or business that we purchased or sold. Certain portions of our indemnification obligations are capped
at the applicable purchase price, while other arrangements are not subject to such a limit. At December 31,
2008, we do not believe that our future obligations under any of these agreements will be material to us.
• Separate Account assets - Certain Separate Account assets associated with the Large Case Pensions business
represent funds maintained as a contractual requirement to fund specific pension annuities that we have
guaranteed. Contractual obligations in these Separate Accounts were $4.5 billion at both December 31, 2008
and 2007. Refer to Note 2 beginning on page 48 for additional information on Separate Accounts. Contract
holders assume all investment and mortality risk and are required to maintain Separate Account balances at or
above a specified level. The level of required funds is a function of the risk underlying the Separate Accounts'
investment strategy. If contract holders do not maintain the required level of Separate Account assets to meet
the annuity guarantees, we would establish an additional liability. Contract holders' balances in the Separate
Accounts at December 31, 2008 exceeded the value of the guaranteed benefit obligation. As a result, we were
not required to maintain any additional liability for our related guarantees at December 31, 2008.
Guaranty Fund Assessments, Market Stabilization and Other Non-Voluntary Risk Sharing Pools
Under guaranty fund laws existing in all states, insurers doing business in those states can be assessed (up to
prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants. Our
assessments generally are based on a formula relating to our premiums in the state compared to the premiums of
other insurers. Certain states allow recoverability of assessments as offsets to premium taxes. While we have
historically recovered more than half of guaranty fund assessments through statutorily permitted premium tax
offsets, significant increases in assessments could jeopardize future recovery of these assessments. Some states have
similar laws relating to HMOs. HMOs in certain states in which we do business are subject to assessments,
including market stabilization and other risk sharing pools for which we are assessed charges based on incurred
claims, demographic membership mix and other factors. We establish liabilities for these assessments based on
applicable laws and regulations. In certain states, the ultimate assessments we pay are dependent upon our